January Monthly Auto Sales Preview: Ford (F) and General Motors (GM)

The leading aut­omakers are scheduled to report monthly sales on Wednesday, February 1st.

Summary:

Automakers are expected to report a 17.4 mln to 17.7 mln seasonally adjusted annual rate (SAAR) for January sales. January is typically the weakest month of the year for sales.

Results for January 2017 have 24 selling days, the same number of days as January 2016.

Gasoline prices remain close to $2.30/gallon. February 2016 was $1.70/gallon followed by an early June $2.38/gallon seasonal high. (AAA)

Kelley Blue Book expects slowing of 1 to 4 percent in 2017 with sales in the range of 16.8 to 17.3 million. Rising supply and interest rate hikes remain areas of worry. Another record in 2017 would likely require undisciplined sales tactics driven by incentives, leasing and longer loan terms. Goldman believes the US Auto cycle peaked in 2015 and is currently being held at a plateaued level by increasing incentives.

Nearly one-third of all millennials who purchased a new vehicle in 2016 chose to lease.

Car loan financing rates are coming off all-time historic lows. Average new loan term durations averaged 69 months in 2016, up from 64 months in 2011. There are roughly 265 mln light vehicles registered in the U.S. today compared to only 255 mln driving age people, or just over 1 car per driver, according to Zero Hedge.

Edmunds reports the average price of a new vehicle rose 2.7% to $34,077 in 2016 for another new all-time high. A record 32% of car shoppers have negative equity on their trade-ins at a record average of $4,832 of negative equity.

2016 marked seven consecutive years of annual growth and the industry’s longest such streak in more than 50 years. The NY Fed’s report focusing on how a rate hike effects the auto industry suggests that a 1% increase in rates would cause car production to fall at a rate of 12% a year and sales to fall at 3.25% a year

U.S. auto stocks are flat-to-lower for close to 3 years despite strong sales. Zero Hedge has pointed out the reason for this is that the automotive inventory-to-sales ratio has been rising since 2011 and has now risen to levels not seen since 2008. Goldman expects pent up auto demand from 2009 through 2012 to be cleared through by 2017 and forecasts a 15 mln SAAR by the end of the decade. U.S. composite economic indexes are still somewhat inverted with the leading inflation index the strongest index followed by lagging indicators that include debt and services inflation. Growth rates: Leading Inflation Index 5.3%, Lagging Economic Index 3.2%, Coincident Economic Index 1.8%, Leading Economic Index 2.4%. This is an unsustainable economic setup that is historically corrected by recession.

Ford Motor (F) Expected Release Time: 9:15 a.m. ET

Overview: Ford Motor (F) reported a $783 million loss in Q4 but focused on the 2016 return to profitability. MarketWatch’s Tomi Kilgore calls Ford’s earnings “one of the most unclear reports so far this earnings season.” They didn’t provide a year-ago number for earnings (or loss) per share, flipped the financial table to show prior-year results first and only provided a link on their press release to direct investors to their website to see the results. (The release is similar to GE’s “if you can’t convince them, confuse them” release). The company expects operating income to decline in 2017 as investment is increased in electric and autonomous vehicles. Ford will test new autonomous vehicles in 2017 on the way to a fully autonomous fleet by 2021.

Technical Review: Ford shares found resistance around the $17 level in 2013 and 2014. The 200-day moving average area has acted as a magnet the past two years and has flattened out at around $12.25. Seasonally, auto stocks favor the first half of the year. Point and figure technicians have a bearish price objective of $7.50 with a $13.50 resistance area. (Chart courtesy of StockCharts.com)

Overview: General Motors (GM) expects its 2017 earnings per share (EPS) diluted-adjusted to increase to $6.00-$6.50, up from its 2016 calendar-year outlook of $5.50-$6.00. The company has said that it can make money if U.S. auto sales fall about 40 percent from 2016’s levels. GM approved an additional $5 billion in stock buybacks. Standard & Poor’s upgraded their GM credit rating to triple-B from triple-B-minus. President-elect Donald Trump has threatened to impose a “border tax” for Chevrolet Cruze cars made in Mexico and brought into the U.S. tax free. GM economists have expressed little interest in the business cycle and prefer to look 5 or even 10 years out when forecasting, so this would be a weakness at economic turning points without a government backstop.

Technical Review: GM shares have found resistance at around $38 since early 2011 and the stock is testing that area again. GM and Ford stocks both showed Q1 weakness the past couple of years into a February low and tend to move similarly. Ford’s stock is relatively weak since late July. Such divergence between the two stocks often precedes major moves in either direction. Point and figure technicians have a bullish price objective of $60. (Chart courtesy of StockCharts.com)

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